Warren Buffett
now manages billions of dollars. He needs big ideas. Small ideas are no
good to him. And he buys businesses for keeps. Would he do the same
thing if he was starting over today? Or would he do the same things he
did when he ran his partnership?

In
the last Berkshire meeting somebody asked: “I am 26. If you were me and
had the chance to start over, what areas would you like to get into and
do you think that my generation has the same number of opportunities as
yours?” Warren: “I think you have all types of opportunities. I would
very much do what I did, start earlier, and do it a little better. I
would try to develop an audited record of performance as early as I
could. I would try to get something a lot more interesting, buying
companies to keep. I establish relationships with people, I want to be
for keeps. That’s been enormously satisfying, but it takes some capital
to get into that business. I built it through managing money for myself
and others. I would get past that as fast as I could then buy
businesses, then spend the rest of my life doing it.”

When
he said: “I would get past that as fast as I could then buy businesses”
(seems like he doesn’t enjoy managing money that much), I understand it
as I would buy net-nets until I got enough money to buy a business that
would let me snowball. Is that what you think?

No. That’s
not exactly what I think. Net-nets can snowball. You just have to keep
flipping them. And not everything Buffett did in his partnership years
was a net-net. He owned a lot of Disney (DIS). And he bet huge on American Express (AXP).

Warren Buffett
was trained by Ben Graham. Ben Graham ran a fund called Graham-Newman.
And Graham-Newman didn’t just do net-nets. In fact, if you look at the
portfolio of Graham-Newman the top heaviness of the portfolio would
surprise you. Graham-Newman bought everything it thought was a bargain.
So it had an insane number of stocks.

The median position size
was tiny. But there were often about five stocks or so at the top of the
portfolio that were big. Never as big as what Buffett would later do.
But they were big.

Some were special situations. But others were
controlled companies. Graham-Newman did a little capital redeployment.
Kind of what might be called activism today. And that had an influence
on Buffett. Although I think he learned from others by watching them in
his partnership years.

Buffett doesn’t mean net-nets don’t
snowball. He really didn’t buy many companies at all until after the
partnership years. So, we’re talking about 15 years of just investing in
stocks – not buying whole companies.

That’s the part Buffett
would shorten. You said it sounded like he didn’t like managing other
people’s money. That’s true. He quit that. And you can tell in the last
letters he wrote during the partnership that he loved owning businesses.
He loved the idea of Berkshire Hathaway (BRK.A)(BRK.B). He loved businesses as enduring things rather than stocks you flipped.

But
there’s a lot of money in flipping stocks. And he made a lot of money
flipping stocks. Both Graham-Newman (where Buffett trained) and the
Buffett partnership made money by getting in and out of some stocks in a
couple years at big gains. That is a good way to make money....MORE